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Momentum trumps fundamentals

Equities may pull back in the short term, but indicators suggest 2024 will be a better year for stocks than most investors expect

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    • When momentum is as strong as recently seen, median returns have been at least double the long-term average up to a year later.
    • When momentum is as strong as recently seen, median returns have been at least double the long-term average up to a year later. PHOTO: PIXABAY

    Leonardo Drago

    Published Mon, Jan 15, 2024 · 06:31 PM

    ONE of the most valuable pieces of trading advice I ever received was during the early days of my finance career in Hong Kong: “Emphasise price action over fundamentals; align your positions with the market, rather than opposing it. When price and fundamentals are in conflict, price wins.”

    The current price action of oil illustrates this point. Since the Israel-Hamas war began in October 2023, oil prices have fallen by 16 per cent. This price action suggests that markets may not be anticipating an escalation in this war.

    Similarly, the price reversal after equities boomed in early November 2023 was swift and triggered many positive momentum indicators, bringing indices close to regaining their all-time highs.

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